Chapter 10 HW Solutions 11-6-06

Chapter 10 HW Solutions 11-6-06 - (3.00 30.00-3.00.05 =...

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Chapter 10 Homework Solutions 10.1) After-tax Cost of Debt = (12%) (1 – T) = (12%) ( 1 - .35) = 7.8% 10.2) Cost of Preferred Stock = 3.80 / 47.50 = 8.0% 10.3) WACC = (% Debt)(Cost of Debt) + (% Equity)(Cost of Equity) Cost of Debt = (9%) (1 -.40) = 5.4% 9.96% = (.40) (5.4%) + (.60) ( Cost of Equity) Cost of Equity = 13.0% 10.4) a. Cost of R/E = (3.00 / 30.00) + .05 = 15.0% b. Cost of Equity =
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Unformatted text preview: (3.00 / 30.00-3.00) + .05 = 16.1% 10.5) Accept A,B,C,D, and E since ROR > WACC for each of these projects. 10.7) a. Cost of R/E = (3.18 / 36.00) + .06 = 14.8% b. Cost of Stock = (3.18 / 32.40) + .06 = 15.8% 10-8) Cost of Stock = ((2.00)(1.07) / 22.50) + .07 = 16.5% Cost of Debt = (12%) (1 - .40) = 7.2% So, WACC = (.40) (7.2%) + (.60) (16.5%) = 12.78%...
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